Tuesday, July 2, 2013

The Idea of America

Washington, Jul.2, free portfolios .- Our attention in today's Daily Reckoning is neither on the Old World nor the New one -- but the ever-changing, never fully explored idea of America.

"Proud to be an American," says one bumper sticker. "One nation -- indivisible," says another. America was, of course, founded on the opposite principle... the idea that people were free to separate themselves from a parent government whenever they felt they had come of age. But no fraud, no matter how stupendous, is so obvious as to be detected by the average American. That is America's great strength... or its most serious weakness.

After Sept. 11, so many people bought flags that the shops ran short. Old Glory festooned nearly every porch and bridge. Patriotism swelled every heart.

Europeans, coming back to the Old Country, reported that they had never seen anything like it. A Frenchman takes his country for granted. He is born into it, just as he is born into his religion. He may be proud of La Belle France the way he is proud of his cheese. But he is not fool enough to claim credit for either one. He just feels lucky to have them for his own.

America, by contrast, is a nation of people who chose to become Americans. Even the oldest family tree in the New World has immigrants at its root. And where did its government, its courts, its businesses and saloons come from? They were all invented by us. Having chosen the country... and made it what it is... Americans feel more responsibility for what it has become than the citizens of most other nations. And they take more pride in it too.

But what is it? What has it become? What makes America different from any other nation? Why should we care more about it than about, say, Lithuania or Chad?

Pressed for an answer, most Americans would reply, "Because America is a free country." What else can be said of the place? Its landmass is as varied as the Earth itself. Inhabiting the sands of Tucson as well as the steppes of Alaska, Americans could as well be called a desert race as an arctic one. Its religions are equally diverse -- from moss-backed Episcopalians of the Virginia Tidewater to the Holy Rollers of East Texas to the Muslims of East Harlem. Nor does blood itself give the country any mark of distinction. The individual American has more in common genetically with the people his people come from than with his fellow Americans. In a DNA test, your correspondent is more likely to be mistaken for an IRA hit man than a Baltimore drug dealer.

America never was a nation in the usual sense of the word. Though there are plenty of exceptions -- especially among the made-up nations of former European colonies -- nations are usually composed of groups of people who share common blood, culture and language.

Americans mostly speak English. But they might just as well speak Spanish. And at the debut of the republic, the Founding Fathers narrowly avoided declaring German the official language... at least that is the legend. A Frenchman has to speak French. A German has to speak the language of der Vaterland. But an American could speak anything. And often does.

Nor is there even a common history. The average immigrant didn't arrive until the early 20th century. By then, America's history was already three centuries old. The average citizen missed the whole thing.

Neither blood, history, religion, language -- what else is left? Only an idea: that you could come to America and be whatever you wanted to be. You might have been a bog-trotter in Ireland or a baron in Silesia; in America, you were free to become whatever you could make of yourself.

"Give me liberty or give me death," said Patrick Henry, raising the rhetorical stakes and praying no one would call him on it. Yet the average man at the time lived in near perfect freedom. There were few books and few laws on them. And fewer people to enforce them. Henry, if he wanted to do so, could have merely crossed the Blue Ridge west of Charlottesville and never seen another government agent again.

Thomas Jefferson complained, in the Declaration of Independence, that Britain had "erected a multitude of New Offices, and set hither swarms of Officers to harass our people, and eat out their substance." Yet the swarms of officers sent by George III would have barely filled a midsized regional office of the IRS or city zoning department today.

Likewise, the Founding Fathers kvetched about taxation without representation. But history has shown that representation only makes taxation worse. Kings, emperors and tyrants must keep tax rates low... otherwise, the people rise in rebellion. It is democrats that really eat out the substance of the people: The illusion of self-government lets them get away with it. Tax rates were only an average of 3% under the tyranny of King George III. One of the blessings of democracy is average tax rates that are 10 times as high.

"Americans today," wrote Rose Wilder Lane in 1936, after the Lincoln administration had annihilated the principle of self-government... but before the Roosevelt team had finished its work, "are the most reckless and lawless of peoples. We are also the most imaginative, the most temperamental, the most infinitely varied."

But by the end of the 20th century, Americans were required to wear seat belts and ate low-fat yogurt without a gun to their heads. The recklessness seems to have been bred out of them. And the variety too. North, south, east and west, people all wear the same clothes and cherish the same decrepit ideas as if they were religious relics.

And why not? It's a free country.

Ed. Note: Since the U.S.'s inception, the concept of a free society has been reinterpreted to be anything but. The government now insists on being an active participant in nearly every aspect of our daily lives, taking us further and further away from the ideas and principles America was founded on.

So it seems fitting that, during this week when we celebrate America's independence, our friends at the Laissez Faire Club are offering Bill Bonner's Idea of America, absolutely free. It's a collection of some of history's most important writings on the concepts of liberty and freedom, compiled and edited by The Daily Reckoning's founder. It's a vital addition to free thinker's library. Take a moment, and secure your free copy right here.

Bogle wrote a letter to the editor. Here's an excerpt: Citing Benjamin Graham as the first "hedged fund" operator is an especially unfortunate example. "The trick," Mr. Rice writes, was Graham's "clever way to make money . . . whether it [the market] continued to rise, or started to fall." ...

One of my pet peeves is the way that insiders -- whether corporate CEOs, hedge fund managers, or elected politicos -- capture compensation (or credit) for normal cyclical gains they had little or nothing to do with.

This is the approach favored by the Crony Capitalists — those people pretending to be free market participants, and who merely pretend to be creating value. They are taking credit for structural successes that would have occurred with or without them. What they are actually doing is capturing value, not creating it — and then transferring it from its true owners (shareholders/investors) to themselves.

This is wrong; it is legalized theft.

If you want to see a good example of how CEOs transfer shareholder wealth to themselves, a good place to start is Roger Lowenstein’s 2004 book, Origins of the Crash: The Great Bubble and Its Undoing. The section on CEO compensation is astounding; these guys were essentially getting wildly overcompensated for being CEOs during a bull market. The prime example was the CEO of Heinz, who gave himself (with the tacit approval of his Board ofCrony Directors) a $90 million bonus. And this was back in the early 1990s, when $90 million was real money.

Earlier this year, Goldman Sachs Asset Management announced that it would launch a new mutual fund that — apparently — will bring the joy of hedge fund investing to the masses. For as little as $1,000, the Multi-Manager Alternatives Fund (GMAMX) allows mom-and-pop investors to put their life savings into some of Wall Street’s riskiest and most expensive products. This “fund of funds” will, according to its prospectus, let investors gain exposure to the trading strategies of hedge funds...

Big public pension funds reaped strong returns from their hedge fund portfolios in 2012, with most of them handily surpassing their own benchmarks and well-used industry indexes. The hedge fund portfolios, for the most part, achieved close to what chief investment officers wanted, despite a 1,500-basis-point difference between the best and worst performers, according toPensions & Investments' analysis of the returns of 19 hedge fund portfolios from 17 U.S. public retirement plans with aggregate hedge fund assets of $60.7 billion.

Something must be in the water over at 399 Park Avenue, where Daniel Loeb's hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

The roughly $1.7 billion Ultra portfolio is a levered version of the firm’s flagship Offshore fund, which manages about $5.7 billion and has gained 8.5 percent over the same period. ...

After taking a cursory look at the recent 13-Fs filed by hedge funds, it became apparent that hedge funds were scaling back their exposures to gold. George Soros was among the big names that unloaded his position. According to Goldman Sachs' new Hedge Fund Trend Monitor report, hedge funds in aggregate scaled back big time.

Despite low turnover, hedge funds notably reduced holdings of underperforming long-time favorites Apple and gold while raising allocations to rallying Financials. For the first time in three years AAPL was not the top stock in our VIP list, instead ranking as the third most frequent top-10 holding... Continue to read.

10 Publicly Traded Hedge Funds That Pay a DividendInvesting in publicly traded hedge funds is a great way for an investor to see returns through capital appreciation and dividend payments in the financial sector. When it comes to investing, many think of the process as a choice between growth and value stocks; you’re either taking on risk in search of capital appreciation, or you’re seeking out stable sources of current income through dividend payments. Luckily, Wall Street has many investment options and investors don’t have to make a clear-cut choice between capital gains and dividends. There are a lot of misunderstandings about dividend stocks out there; make sure you’re investing for the right reasons, check out 5 Common Misconceptions About Dividend Investing.... Continue.

Hedge Funds Love These 3 Outperforming Semiconductor Stocks ...Do you like to follow the buying trends of smart money investors? We ran a screen to find semiconductor stocks currently in favor by hedge fund managers. We began by screening the semiconductor industry for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages, indicating that these stocks have strong upward momentum.We then screened for those with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float.... Continue.

10 REITs Absolutely Adored By Hedge FundsAfter identifying the most popular stocks among hedge funds (see our full Top 10 here) according to their third-quarter 13F filings, we have decided to break down the top 10 REIT stocks that hedge funds love. The REIT industry, notably specialized REITs in hospitality and healthcare, should see positive growth from a rise in job growth and expansion due to freeing up of the credit markets. Our list includes 400 hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In descending order, we have outlined the most-loved REIT stocks based on the aggregate number of funds owning each....Continue.

Apple Stock Hit by Panic Selling: 'Someone Yelled Fire'(Yahoo) Forget the "fiscal cliff." The real panic on Wall Street is over Apple's stock. Nearly every mutual and hedge fund has piled into Apple Inc. (NASDAQ:AAPL) during its spectacular rise over the past few years. Now, these same funds are scrambling for the exits as the stock goes through an equally spectacular decline. Apple plunged to a six-month low Thursday as funds rushed to take profits on the stock before it's too late. Shares are now off 25 percent since late September-shortly after the iPhone 5 launch and a month before the iPad Mini introduction. The stock, once up 74 percent on the year, is still up 30 percent for 2012. That's why Wall Street is getting out while it can....

Billionaire George Soros’s Latest Stock Picks (InsiderMonkey) George Soros is best known for the fortune he made shorting the British pound in 1992, but he currently invests a considerable amount of money in equities and so is required to report many of his long positions in 13F filings. We’ve gone through the 13F for the third quarter of the year and compared Soros’s holdings at the end of September to three months earlier. Read on for our impression of his moves and compare them to what he's bought and sold before. AIG. American International Group, Inc. (NYSE::AIG) became Soros’s largest 13F equity holding during the third quarter with a position of over 15 million shares being reported in the filing. A number of value investors have been getting into the insurer over the course of the year, and at a P/B ratio of 0.5 it certainly looks cheap compared to the book value of its equity. We also like its earnings multiples- it trades at 9 times forward earnings estimates- and revenue was up strongly in the third quarter compared to the same period in 2011. Fellow billionaire Dan Loeb had initiated a position during the second quarter of 2012 and we think that it still looks like a good buy for investors....

Duke Energy CEO Jim Rogers still facing issues as tough year nears an end (BizJournals) In late 2011, Jim Rogers seemed almost golden. He was about to close his last big merger deal. He was poised to take a corporate chairmanship tailored to his penchants for energy policy and reshaping the utility-business model. He was ready to bask in the spotlight of a national convention he’d helped bring to Charlotte. But by late 2012, it’s evident things have not gone so well. “It has been a year of challenges,” the Duke Energy Corp. chief executive concedes. “Nothing in life is perfect.” Dan Fogel, associate director of the Wake Forest University Business School’s Center for Energy, ...

Argo unveils emerging markets hedge fund (InvestmentWeek) Argo Group has launched an emerging markets hedge fund investing in bonds and currencies from a universe of over 40 emerging market countries. The Argo Local Markets fund aims to hold between 20 and 30 positions and has been launched with an initial $7m of seed capital. It will offer investors weekly liquidity and has a mandate to take on moderate leverage. Argo chief executive Kyriakos Rialas said: "The case for investing in emerging markets is compelling....

Argentina's President Is Making Great Political Theater Out Of Paul Singer Seizing The Country's Naval Ship(BusinessInsider) Cristina Fernandez de Kirchner is turning her feud with hedge fund manager Paul Singer into a political rallying cry in Argentina. The President has refused to pay Singer's firm Elliott Management the $1.3 billion it owes the fund after it defaulted in 2010. de Kirchner says it's because Singer was given multiple chances (in 2005 and 2010) to restructure, like other hedge funds did, and take a haircut to recoup at least a portion of their losses. Singer, needless to say, did not. Instead, he decided to capture one of Argentina's naval vessels as collateral, and got Ghana to give him an order to detain the ARA Libertad last month....

Tom Steyer New InvestmentsFARALLON CAPITAL Hedge fund billionaire into politics (DailyDemocrat) Hedge-fund billionaire Tom Steyer staked millions of his own money to take on big oil and then to close a corporate-tax loophole costing California $1billion a year -- and won both times. Ever heard of him? Don't worry, you will. With his latest behind-the-scenes win at the polls as the man who stared down big business by standing up for Proposition 39, this Stanford MBA and top Obama fundraiser has become an out-of-nowhere big-time political player in California. So what does Tom Steyer want now? "I am an enormous lover of California and to the extent that I see something wrong, I will be involved in trying to fix it," Steyer, 55, said Monday. "What form that takes, I don't have a fixed idea."...

Hedge Fund News: David Tepper Value ...Billionaire David Tepper's Latest Stock Picks (InsiderMonkey) Appaloosa Management is a value hedge fund managed by billionaire David Tepper (whose name might sound familiar to any recent attendees of Carnegie Mellon’s Tepper School of Business). The fund has an estimated $16 billion under management. We have gone through Appaloosa’s 13F for the third quarter of 2012 and picked out... Continue to read.

This Hedge Fund Returned Nearly 25% Last Quarter Artis Capital Management was a top performing hedge fund during the third quarter. Coming in with the fourth best Q3 performance, the fund’s picks had a weighted average return of 25.5% during the first half of the year, and returned 24.6% for the third quarter, boosting the fund’s year to date performance to 56.4%. Artis Capital was founded in 2001 and is a San Francisco-based hedge fund with a focus on public technology companies.... Read more.

More ETFs Play Hedge Fund CopycatWhat if you could emulate the actions of the most successful hedge fund managers for a fraction of what they cost? Two ETFs that debuted this summer are trying to do that by using public filings to replicate their portfolios. And a third, which launched early this month, promises to add another hedge fund dimension to ETF copycats by adopting what its sponsor calls the only true market-neutral strategy in the lot. Researchers have been trying to emulate hedge fund strategies since the 1990s ... Read more

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BMW and Pininfarina are two of the most tradition-swathed names in the motoring world. Each is a byword for cutting-edge technology, style, dynamics and aesthetics. With the BMW Pininfarina Gran Lusso Coupé, the two

time-honoured companies are unveiling the outcome of their first collaboration at the Concorso d’Eleganza Villa d’Este 2013. The BMW Pininfarina Gran Lusso Coupé is a one-off and represents the exclusive interpretation of a luxurious BMW Coupé as seen through the eyes of Pininfarina.

The precious metals have been weak again in May with gold falling 4.4% despite this weeks’ recovery. Silver is down 7% and platinum by 2.6%. Palladium has recovered from recent weakness and those who accumulated on weakness are set for the best month since November after it surged 6.6% in May.

Weakness in gold and silver is leading to robust demand internationally as store of value buyers accumulate gold and silver on this dip. This is particularly the case in Asia where premiums remain robust and supply demand imbalances remain. ...

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The future of work is the work itself, not where and when the work takes place. Workplace flexibility programs are already catching on and will soon become standardized as more millennials enter the workplace. All workers, not just millennials,want freedom and flexibility and some are even quitting their jobs to becoming freelancers in order to gain that freedom. oDesk.com has 3.3 million registered freelancers, and Intuit predicts that by 2020, 40% of Americans will be freelancers. When it comes to working from home, 13.4 million people (9.4% of all American workers) work from home at least one day per week compared to just 9.2 million in 1997 according to one Census Bureau.

Russia is funding research into powering its airplanes with solar energy. The airline industry is being hurt by high fuel prices, and solar-powered planes would not only be cheaper but also would remove a major source of carbon pollution that contributes to global warming.

Investors have picked over the ETF universe in search of any kind of yield in an extremely low-rate market for bonds. As a result, ETFs tracking many traditional high-yield sectors have been bid up to expensive levels, but there are still places investors can go for income without paying nosebleed valuations. “Unfortunately, valuations [for dividends, high-yield junk bonds, MLPs, and REITs] are approaching sky high levels in many instances as more investors fall in love with these products ... Continue.

U.S. manufacturing growth picked up in March as new orders increased and hiring quickened, closing out the best quarter for the sector in two years, a survey showed on Monday. Financial data firm Markit said its U.S. Manufacturing Purchasing Managers Index rose to 54.6 last month from 54.3 in February. A reading above 50 indicates expansion. Output increased, though the rate of growth slipped to 56.6 from 57.3 in February...